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Selling real estate - '90s style.

As little as a year ago, it was hard to believe that auctions would become accepted as a highly effective and popular method to market commercial property in the United States. Although property auctions have been used successfully for hundreds of years in Great Britain, Americans generally sneered at the idea, recalling foreclosure sales on the courthouse steps.

Until recently commercial auctions were typically considered an option of last resort to dispose of abandoned, unwanted, and vastly underpriced properties whose owners wanted to cash out at any price.

What a difference a year makes. In the past 12 months, auctions have not only become legitimized as a marketing alternative, but the size, structure, and stature of the portfolios being auctioned off have risen immeasurably.

One major reason that auctions now seem viable as a way to sell commercial property is that the federal government, as well as banks, insurance companies and other institutional owners, are determined to move troubled real estate assets off their books and into private hands.

Increasingly, these owners have either organized or participated in "mega-auctions," which far exceed earlier sales in terms of portfolio size and composition, marketing sophistication, and the use of state-of-the-art communication and computer technology.

Such auctions are generally targeted for the "new breed" of real estate investor: wealthy individuals. To participate in these new auctions, investors must often deposit $50,000 to $100,000 in earnest money property and agree to sign transfer documents at the auction and to close within 30 days. Financing options vary, but can range from generous seller financing to an insistence on all cash.

Since early 1992, virtually all of the country's largest brokerage firms have either held or are organizing mega-auctions through a joint-venture arrangement with a leading national auction house.

Under this arrangement, the brokerage firm assembles, researches, and prices the properties; promotes the auction through its network of offices; and handles the closings. The auction house organizes and runs the auction itself.

For each property sold at these auctions, the broker or broker/auctioneer team receives a negotiated commission or fee, which can be between 1 and 6 percent of the sale price, depending upon the property; the nature, size, and composition of the portfolio; and any arrangements made with the sellers.

RTC leads the way

The first "mega-auction" was the RTC's "Premier Commercial Auction," held by CB Commercial and Kennedy-Wilson Auctioneers in Palm Springs, California, last November. More than 800 people attended.

The properties offered included office buildings, apartments, retail centers, congregate care facilities, office parks, mini-storage warehouses, and hotel/golf resorts located in Arizona, California, Florida, Missouri, Ohio, and Texas.

All 14 properties offered were sold for a total of $181 million, and all achieved prices higher than their reserves (suggested minimum bids), according to Don Gabriel, senior vice president of CB Commercial's Portfolio Services Division in Dallas.

The auction was successful because "reserve prices were set appropriately, the due diligence on each property was thorough and complete, and buyers were given every opportunity to find out as much as they could about the properties beforehand," says Gabriel.

The RTC auction was followed in December by the FDIC's "National Real Estate Auction" held in Dallas, which was organized by Grubb & Ellis and the Ross-Dove Auction Company.

More than 175 properties in 25 states valued at $500 million were offered, and most of them were sold either at the auction or in subsequent negotiations, generating $350 million in sales.

This nationally publicized auction attracted approximately 2,500 potential bidders in person in Dallas, and a total of 4,800 people via closed circuit television to groups in Boston, Denver, Los Angeles, and Orlando.

Institutions join in

With the RTC and FDIC proving the auction system works, institutional owners have begun to warily test the waters. In May, the Grubb & Ellis/Ross-Dove Company Real Estate Auction Partnership sold off 85 properties valued at $300 million in Dallas.

This was the largest property valuation ever accumulated from multiple private-sector owners for sale in a single auction, with most of the sellers providing financing.

The properties were located in 23 states and included office, retail, industrial, hospitality and multi-family assets, and land. The auction was conducted through a live, interactive satellite hook-up to bidders located in hotels in Dallas, San Francisco, and New York.

The most recent "mega-auction" was the International Auction of U.S. Commercial Real Estate, held by Jones Lang Wootton and Kennedy-Wilson in Los Angeles in August. Billed as the "largest global auction ever," it consisted of 62 properties valued at $400 million, offered by 22 institutions, including Prudential Realty, Equitable Life Assurance, Trammell Crow, and JMB Realty Corp.

Approximately 30 percent of the auction offerings, which included office, apartment, retail, hospitality, and industrial properties, were acquired through foreclosure by the participants.

The auction was advertised with a $2 million marketing campaign involving JLW's 63 offices in 23 countries. The advertising was funded by charging sellers 1 percent of their properties' reserve prices.

The global marketing program included a glossy, four-color catalog, a national public relations campaign in the United States, advertising in 72 publications in 12 languages in 13 countries, and direct mail to JLW's 30,000 clients worldwide.

While $174 million in assets were sold at the auction, the final results will not be known for a while, says Simon Milde, chairman of Jones Lang Wootton USA.

Milde explains that the real action continues long after the auction is over. "If you go to an auction, you only see half the game," he says. "After our auction, there were extensive negotiations which went on for the next seven or eight hours on literally dozens of deals."

Milde points out that the average prices of properties sold at the auction were 2 percent above the reserve price. Of the 62 properties offered, 34 were under contract by late August, and a further 20 were under negotiation.

And it seems these huge auctions just keep getting bigger. In August, the Grubb & Ellis/Ross-Dove partnership announced it will auction off more than 200 commercial properties held by the FDIC in December in Dallas. The portfolio will be worth between $600 million to $750 million.


If auctions are rapidly making the sale of properties a group activity, the same cannot yet be said for leasing. In fact, there is a distinct shortage of events dedicated to leasing space and/or marketing buildings in a controlled environment.

One notable exception is the International Council of Shopping Centers' annual convention, which is held in May in the Las Vegas Convention Center. The five-day event has two parts: a two-day trade show for suppliers, which runs consecutively with a comprehensive series of lectures and panel discussions; and a three-day, 1-million-square-foot "Leasing Mall," which has become the essential place to be to make deals in retailing real estate.

This approach makes sense for retailing because many of the large shopping center tenants are divisions of large national and/or regional conglomerates. But the general feeling is that the same expo concept will not work for office and industrial properties because their tenant base is primarily drawn from within a local market.

Or will it? Since 1984, the Commercial Investment Division of the Greater Dallas Association of REALTORS|R~ has hosted a "Commercial Real Estate Expo," which showcases area commercial properties and companies on a broker-to-broker and owner-to-user basis.

This half-day event is held each fail at the Infomart in downtown Dallas and is the only event of its kind in the Metroplex where all aspects of commercial real estate are represented in one place.

Approximately 1,800 people attended the 1991 Expo, and 103 companies participated as exhibitors, including developers, private and institutional owners and investors, lenders, brokers, property and asset managers, tenants, construction and architectural firms, title companies, and a host of firms providing support services to the industry.

Unlike the ICSC annual convention, which is staffed by paid employees, the Real Estate Expo is organized mostly by volunteers, all of whom are active professionals in the Dallas/Fort Worth commercial real estate industry. For the 1992 Expo, approximately 70 people donated their time and effort to sell booths, secure speakers, make the arrangements, and handle publicity and advertising.

Thanks to an expanded marketing emphasis, the 1992 Expo is expected to be the biggest yet. As of late August, booth sales had exceeded 1991's pace, and more than 2,000 people were expected to attend.

Although the Commercial Real Estate Expo is geared specifically towards the needs and interests of the Dallas/Fort Worth market, there is an increasing emphasis on "nationalizing" the scope of the Expo to reflect the broadening activities of its exhibitors and attendees.

"Twenty of the 23 largest asset managers, investors, pension funds, real estate advisors, architects, and insurance companies in this country have offices in Dallas/Fort Worth," notes Jan Elwell, CPM|R~, chair of the 1992 Expo and a director with Aetna Realty Investors, Inc.

Hobnobbing with one's peers can be very invigorating, but how does the Expo work as a dealmaking vehicle? "About two years ago, an individual came to the Aetna booth and very quietly asked for some information on a property," Elwell says.

"He didn't have the demeanor of an investor, but he ended up buying five apartment complexes through contacts that were made at the Expo. You never know who you will meet there. And probably that's the real drawing card."

For those looking to do business on a much broader geographic scope, there is the annual "International Property Market Show/MIPIM" held in Cannes, France, which is designed to bring buyers, sellers, and users together on a global scale.

While most trade shows are generated by an industry organization or a local trade group, MIPIM (standing for Marche International des Professionals de l'Immobilier, or International Market for Property Professionals) was created and is run by The Midem Organization, a French exposition/trade show company.

"The real estate community in Europe heretofore had not been organized on a pan-European basis," notes David Sierens, vice president of North American sales for MIPIM. "MIPIM exists to represent the broadest possible spectrum of everyone involved in the industry."

MIPIM '92, for example, attracted over 5,100 attendees, and more than 1,600 companies from 33 countries, who participated jointly or singularly in 260 exhibits. The eight most represented countries in terms of exhibitors were France with 662; Great Britain, 278; Germany, 95; Netherlands, 89; U.S., 72; Belgium, 62; Spain, 58; and Italy, 48.

The 1993 program, to be held in March, will be in two parts: an international property exhibition, at which firms present current and planned projects and promote their individual specialties; and an in-depth series of seminars and workshops covering investment strategies, market reviews, and other topics of interest to the real estate industry.

"MIPIM is the trading place for so many countries," Sierens says. "Even though the economy might be weak in parts of Northern Europe and the United Kingdom, it's fine in other places. This is a highly successful way to bring all of the countries together to exchange information and properties, and keep the overall property market strong."

Ultimately, it is still difficult to believe that real estate is quite ready to become a global market. But as these new, mass-market vehicles for selling and leasing property clearly indicate, the owner or real estate manager who looks no farther than his or her immediate area is a thing of the past.

Janet White is president of Dallas-based White Marketing Services, which provides public relations and writing services to commercial real estate companies nationwide.
COPYRIGHT 1992 National Association of Realtors
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Author:White, Janet
Publication:Journal of Property Management
Date:Nov 1, 1992
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